Prepare for your child's financial future

H: Host, Jayne Constantinis
R: Roger Edwards, Bright Grey
M: Michaela Strachan, TV presenter

H: Hello and welcome to the Personal Finance Show, I’m Jayne Constantinis. Now becoming a parent is the greatest experience many of us will ever have, but it’s not without its stresses and strains, much of which are based on that deep felt desire we all have to protect our kids. Well, while we’re taking care of our children’s safety on a day-to-day basis, a staggering two thirds of Britons have no life insurance, should the worst ever happen. Well joining me today to talk about this and more is insurance expert Roger Edwards from Bright Grey, and wildlife TV Presenter Michaela Strachan. Welcome both of you, thanks for coming in

R: Hello

M: Hi Jayne

H: To talk to us. And of course we’re live so if you’ve got a question for our guests then put it in the box on your screen and send it to us with your name of course and we’ll get through as many as we can. Now, Roger, this research that you’ve done – two thirds of Britons not taking care of their children’s future. What’s going on?

R: They’re not planning for the future. They’re thinking about what’s happening today. Now what people are very good at is looking after their children on a day-to-day basis. You know if you’re taking your children to school you’ll make sure that they cross the road safely. If they’re in the car, you’ll put the seat belt on – so that’s good, we’re looking after them now and keeping them safe. But what about in the future? And what about if something happens to you as a parent, what about your earning potential if you stop earning a year-round salary because of illness or sadly something worse, if you die? What are you doing to plan for that eventuality? And that’s what our research has shown people are not doing, they’re not thinking about a few years hence, ten years hence. They’re just thinking about today and the little things that happen in our lives

H: It’s interesting that isn’t it because I’m a parent, I’ve got a four year old, and I remember a change in my thinking when I had that new, huge responsibility. Michaela you’re a mother too aren’t you? Did you find the same thing?

M: Well mine’s 3 ½ so a similar age, and definitely, I mean the sort of programs I do, I’m often asked to do really crazy things including swimming with sharks and doing things that you know your life could be in danger, and I remember I was doing Michaela’s wild challenge for Channel 5, when I got pregnant and they said to me, after I gave birth, they said look we’re presuming you’re not going to want to do the dangerous stuff anymore? And I said well funny you should say that, and this was a bloke that said it to me, so I was really impressed, I said no I just don’t feel quite so gung ho right now. And I think that because I’ve got a little one that totally depends on me – I mean maybe by the time he’s 15 I might sort of want to be jumping off cliffs again and doing crazy things, but right now, I know how precious I am to that little boy, and how he would be absolutely – I mean well, what would he do if his mum wasn’t there? So yes I’ve definitely started thinking about my own security, as in not doing crazy things anymore, and also thinking about his security for the future

H: That’s the key to it, isn’t it? It’s all very well looking after their well-being, but we are also such a, you know such a precious component of their lives, and you know Roger we insure our phones and our pets, and of course our houses and our precious vase, but not ourselves

R: It’s amazing how people tend not to value themselves and their worth, I mean yes it’s great to buy a car and you can drive around in it and you can put it on your driveway and you can polish it, and therefore you’re proud of it, you want to insure it, but if you actually think about how much you are worth, even in terms of the salary you’ll earn in the course of your lifetime and what that can mean to your family, that salary buys your house, it buys the food, it buys the clothes and all of that sort of thing, and why wouldn’t you insure something so valuable? Your own ability to provide for your children

M: It never ceases to amaze me with the car, you know you have to MOT your car by law every year, you have to insure your car, and yet people don’t look after themselves, they don’t have a check-up and they don’t insure themselves, and you think what’s more important – your car or you? I think most of us would say we’re more important than our car

H: Yes you’re right

R: People would insure a mobile phone, and then they’ll replace it in 6 months time

H: Yes

R: You can’t replace yourself every six months

H: And of course these sorts of issues will come up by their very nature at a time when the family is under a great deal of emotional trauma and stress, if it’s the death of a parent say. So the last thing you want then are financial worries – isn’t it?

R: Absolutely right

H: You’ve got experience of this haven’t you?

M: Yes because my partner, before I met him, his wife very sadly died of cancer leaving three children behind – twins of 11 and a daughter of 13, and fortunately – she was a money earner, she had a salary and she did have a little bit of life insurance which then sort of got the family through that first year. it wasn’t a huge amount of money but that first year, when one parent dies is – everyone falls apart. I mean obviously emotionally it’s hectic, and it means that those children didn’t have to be taken out of the school they were in, they didn’t have to sell the house, they could just continue on a bit and everyone could just sort of grieve, but get on with their lives that they had before their mother had died.

H: Continuity -

M: It’s a terrible, terrible time. You’re right, continuity, you’re absolutely right

H: Because it also you know if you put it in financial terms, it costs a huge amount of money to bring up a child doesn’t it? What’s the figure these days?

R: Well it depends which article you read, but about quarter of a million pounds to raise each child that you have

M: Quarter of a million, is it that much?

R: Quarter of a million and that’s for one

H: That’s if you feed them!

R: Imagine if you’re having, like yourself, a family of 3 or 4 – that money mounts up over time and again you’ve got to think about, it’s my salary and my partner’s salary that’s funding all of that. In addition to paying for the house and the mortgage and our own needs and entertainments and lifestyle – we’ve got a huge financial commitment when we have children and it’s really quite irresponsible not to plan for the future to make sure that if something happens to us there is that financial safety net in place to ensure that they can carry on if we’re not here, or if we are here but less able to look after them we can all carry on and live our lives to our best abilities

H: Ok so we’re all terrified now and I’m going to run home, I’m going to run home and check my policy. I know I’ve got one but I don’t know how much it’s for, and my husbands’.

M: I’m still terrified by half a million pounds for one, that’s 4 – that’s a million quid for four children. I’m still recovering!

H: You should have thought of that before!

M: I mean one of them’s mine

H: And no more! Where can people who know that they’re not covered go, now, to get some advice?

R: The first thing is obviously internet. I would always recommend that somebody spoke to a financial advisor, and you can go on the internet these days and find the address of a financial advisor near to you. There are other sorts of people though who would maybe like to do a bit of research first, they’ll go onto the internet, they maybe type in life assurance, they maybe type in income protection and they can read about what’s available, they can learn about the policies that they can take out, and then they may go and find an advisor who can take them through some of the detail and find something that’s absolutely tailor-made to their own circumstances. But the key thing is – do it. Let’s not think about, oh I’ve got to get the – I’ve got to get my son off to his swimming lesson, there’s a karate lesson for my eldest daughter I’ll do the life assurance thing tomorrow, and then tomorrow it’s something else, and you’re always putting it off. Sit down, take stock, get on the internet, get on the phone, and start to think about these important things

H: And as well, let’s not forget it’s a pretty gloomy thing to be thinking about isn’t it? You don’t really want to be talking about it

M: It’s not top of a cheerful comedy list is it?

H: No it’s not is it, no

M: But it’s a reality and I mean I’ve been saying sit down, do your will, do your policy with a glass of wine and some little nibbles and do it together with your partner, and you know just make it one of those things, right we’ve got to do it tonight, let’s make it as pleasant as possible and it’s a bit of a grim subject but let’s get on with it and tick it off

R: Almost make it like a family annual general meeting or something like that

M: Oh I can see my 3 year old sitting through that!

R: Absolutely – he could be the chairman. He could be the chairman just –

H: Yes, and those nibbles – well you’ll never get any of those! Let’s have a look at a question – Thomas from Bentley has contacted us, he says “what are the different types of illness” – he’s talking about illness cover out there, “for example if I fall ill and I’m unable to work, does it depend what’s wrong with me as to what covers me?”

R: Right. I think what Thomas is alluding to here are actually two types of insurance. The first one he alluded to is what’s known as income protection, that pays out if you can’t work for whatever reason, so that could be a bad back, it could be a broken leg or it could be something serious like a heart attack or cancer. But the actual thing that you have to pass in the definition of a policy is you’re unable to work for whatever reason. So that’s income protection. There’s another sort of policy you can buy which is called critical illness cover which pays out for specific illnesses. So if you were diagnosed with cancer, even if you could still work actually, if you were diagnosed with cancer, you would get the money, so there is a specific difference. Now if you think about it, if your ability to work is the most important thing, and to bring your salary in, then perhaps you should be thinking about something that will pay you an income whatever it is that keeps you off work. If you maybe think about if I, if I got cancer or had a heart attack then I would definitely take a year off work and in order to do that I would have to specifically clear my mortgage and everything, then you could think about that as an alternative. Probably ideally you could probably do with somewhere – a little bit of both to be honest

H: Ok great. Hope that answers Thomas’s question. Trevor from Lincoln has raised another important issue I think. “I’m in my late 30s and lead an extremely healthy lifestyle. When should I start thinking about life cover?” When’s the best time to start?

R: That’s an interesting question because obviously the healthier you are and the younger you are, the cheaper life insurance is going to be. But if you’re young and healthy and you’ve got no family or dependents you don’t actually need it. It’s only once you’ve got a financial relationship, so if you’ve got a partner and you buy a house together, and then of course as we’ve already said when children come along, that’s when you need to start thinking about buying it, and of course if you’re into your late 30s and early 40s when you get it into that position where you need to buy life assurance, and you’re leading a healthy lifestyle, you’re down the gym every day, you’re running, whatever it is, then maybe you’ll get a better deal because you’re healthy at the same time

H: And there are certain triggers aren’t there, live triggers, I mean Michaela when did you think about taking out a policy?

M: I think definitely when you have a child, because you think when you’re on your own, even when I was with a partner before I thought well if something happens to me, he can earn a living, he’ll have to change his lifestyle a little bit but he’ll probably meet somebody else. But I think when you have children and then you’re expecting someone to take those children on, and just say God forbid you were both killed in a car crash or something, someone has got to take those children on which is an enormous undertaking. Imagine if they then have to undertake all the financial burden of it as well, not only the emotional burden. So I think – I often think about that and I just think oh no that’s just too awful to bear, so at least get the finances in place and then assign somebody to take over your children. I mean it is an awful thing to talk about, we all hate talking about it

H: We should really have the glass of wine and the nibbles – I’m sorry that I didn’t provide those. Another trigger is when you get a mortgage or buy a house with somebody, and that often is when you’re you know, quite young

R: I think that for most people the commitment to a mortgage is the biggest financial commitment they’re likely to make in their entire life. You know £50,000, £100,000, £200,000, whatever the figure is, it’s quite a lot of money compared to the salary that you’re on, and what you really need to think about is again what happens if I can’t work, because it’s my salary that’s paying the repayments. If I died, and I’ve got a family the last thing that they should be saddled with is having to pay off that debt if I’m not there. So put provision in place, though again going back to what Tom has said before, your income protection could pay your interest payments if you can’t work for whatever reason, and your critical illness policy could pay off the whole mortgage if you had a serious heart attack. And it’s things like that, the subtle differences between the cover which again I would recommend people speak to a financial advisor or at least having a look on the internet and finding out what the different options are

M: You used to get life insurance with a mortgage didn’t you? In the old days, if you had an endowment, life insurance would come with that

R: That’s correct. Actually it’s a very good point because yes 10 or 15 years ago, every mortgage, it was almost compulsory, just like having car insurance is compulsory if you have a car, it was compulsory to have a life assurance policy, and indeed a lot of banks said you had to have a life assurance policy and you had to physically assign it to them, almost so they were guaranteed to get it if you died. Now of course a lot of, the majority of mortgage lenders don’t require life assurance as standard, but they recommend –

H: Why did that change?

R: It’s just a change in buying patterns, a change in the way, and of course endowment mortgages don’t exist anymore because some of them weren’t very good for customers, but that fact that it was taken away was the fact that you had to have it, meant that now a lot of people don’t. And again you know if you’re taking out a mortgage sometimes you don’t even have the conversation

H: Yes

R: And again it’s a conversation you should have because eventually, you know whose living in the house? It’s not just you whose paying the bills

H: Yes mortgages are a hot topic at the moment, as of course is redundancy and we’ve had a question in from Justin, “I’m worried about my job in this climate. Should I get income protection just in case I’m made redundant?”

R: Again I think that financial advice would be good. Income protection, you need to be very – slightly careful. If you go on to the internet and type in “income protection” it will sometimes come back and tell you about the thing that will pay out if you’re sick and can’t work. Some of those policies don’t cover redundancy, so if you’re specifically worried about redundancy, if that’s what you’re worried about, make sure that the sort of policy you’re taking out covers you not only for sickness but also redundancy as well. Or you could just get that one for redundancy if that was what you were worried about

H: Now let’s just think about how much all of this costs, because a lot of people might be put off thinking oh you know, £250,000 for each child – that’s going to be a fortune each month. What sort of – obviously you can’t be very specific – what sort of figures might we be talking about?

R: Well it does depend upon the age of the person, but life insurance in particular is so cheap these days that even well into your 40s you could probably get around about £200 / £250,000 worth of cover for about a tenner a month. Now the reality is a lot of people probably think it’d be more like £100 a month, £10 for a £250,000 isn’t too much of an ask, and ok I know that we’re in a recession at the moment, and people probably are looking for ways of saving money, but actually a tenner a month, it’s –

H: Better to give up that cup of coffee on the way to work

R: Absolutely. Or maybe we’ll do without the wine with our nibbles – whatever

H: Misery! Don’t go that far

M: Yes we’ll do without the nibbles

R: Yes we’ll do without the nibbles and keep the wine. But it’s just making, you know like if you buy a magazine regularly, take a subscription to it, because that usually halves the cost and that frees you up another tenner, which you can use to buy that. I mean £10 a month for a couple of hundred thousand pounds is great value for money

H: I think what you said earlier Michaela is quite interesting, this idea of a sort of MOT of your finances, it’s sitting down with or without the wine and looking at all the outgoings, and I imagine a lot of families around the country are doing that right now, aren’t they? Where can we make savings?

M: Well you’d hope so, and you know I’ve – obviously there would be, in this recession there would be disaster stories, but I think for some people it will make people just tighten their belt in a positive way and look at ways they can save money and think – gosh you know we’ve saved a lot of money by not actually doing that much. So – I think it is important to sit down and talk about your finances every so often, and I think even with life insurance, you know you have to – in another sort of 4 years, think it through again, because obviously even if you have children, they’re reliant on you for what 20-odd years, so you can change it and manipulate it as they get older, and maybe lessen it when they’re much older

H: Is it that flexible? Can you, you know you’re not locked in forever once you’re signed up?

R: No I mean you will usually take a policy out for a specific period of time, 20, 25 years, but most policies will include flexibility to allow you to increase cover, decrease cover. You could have it linked to inflation, I know inflation isn’t very high at the moment but you could have it linked so that it goes up each year in line with inflation. There are certain policies that might go up and down, depending upon how much of a mortgage you may have paid back, if you have an offset type of mortgage. So policies have flexibility. Again there are different things out there so you need to research it, you need to speak to a financial advisor, there are some which have got no flexibility at all, and are quite cheap. Some you might pay a little bit more for that extra bit of flexibility, but it’s like most things in life, if you take the absolute cheapest option, it tends to have not much in the way of extras. If you want to have just that little bit of extra flexibility, I suppose depends upon models of cars, if you want leather seats you pay a bit more, if you want a bit more flexibility you pay a bit more

H: Yes. And in fact that feeds nicely into Pete’s question. He says “I’ve already got critical illness cover, but I’m not sure – it’s quite expensive. Could I transfer the policy over or is this problematic?” so that gets to the heart of the flexibility question

R: It depends what he’s wanting to transfer it over to. When you take out a critical illness policy you are insuring yourself against being diagnosed with a list of illnesses – 20 or 30 different illness conditions. It’s like car insurance, at the end of a year with a car insurance policy, if you haven’t had an accident, you don’t get any money. You might get a no claims discount. But it’s the same with a critical illness policy, if you haven’t had the illness at the end of your insurance period then you don’t get anything back. That’s just the nature of insurance. So sometimes you take a policy out and you want to stop it, and move to something else, it’s usually just a question of saying well ok, I’ve decided that’s not what I need and I’ll cash it in and take out something else. But you won’t actually be saying well you haven’t claimed so we’ll give you your money back, or we’ll give you an investment amount back, because that’s not the way that they work

H: We’ve got another question here from Peter. He’s got 3 children all under the age of 10, and was recently diagnosed with terminal cancer. What sort of policy would be available to him?

R: These sorts of policies are quite difficult for people who have already got an illness to take out, and the circumstances here are obviously quite sad. You might be able to find specialist insurers that might give people a little bit of cover, but the reality is that if you’re already ill, it’s going to be very difficult or at least very expensive to provide cover. I guess sadly what it does highlight the fact is that – going back to the earlier point to the gentleman who said he was fit and healthy, if you can buy this when you’re younger, when you’re fit, then you’re providing for the future eventualities such as this

H: And another question that’s come in – it’s slightly off what we were talking about earlier, but from moneyhighstreet.com, you asked earlier that £250,000 was it based on private education, this question is about what is the best way to save for and fund your child’s private education? Now not specifically if one spouse dies, but it’s a bit of broader question

R: Yes it’s a very interesting question at the moment with the economy in the way that it is and interest rates are low therefore people who are saving money in building society accounts and investments are perhaps not getting the return that they would have had years, a few years ago when interest rates were higher. And obviously with the stock market in a bit of a downturn as well you’re not seeing the return on savings. I guess looking to the long term, if you could put money into something over a long period of time, then the usual long term trend is upwards, so if you can save some money each month, either in a safe haven like a bank account or a cash ISA or something like that or again speak to a financial advisor about the pitfalls or advantages in investing in certain investment vehicles then you can put together a portfolio which might give you some long term growth, and ultimately you could then use that growth in the future to pay for the school fees that you’ve alluded to

H: A lot of people who rely on grandparents to contribute to the school fees are really suffering at the moment because the grandparent’s income is based on investments and savings

R: Absolutely

M: I must tell my mum that then. I’m relying on you! For £250,000 for my child’s education

R: The grandparents wanted to spend that on going on a cruise round the world as well.

H: Oh so there are going to be some tricky conversations around the kitchen tables

R: Absolutely

H: Darling you know little Tommy’s in private school? Well we’re going on that cruise instead! But you’re right, it is a horrid subject, we just need to sort of grasp the nettle and speak to the right people. I kept hearing you say you need to speak to an advisor because it’s a very personal thing, it’s like – the solution for you is going to be very individual isn’t it? So it’s not something you can just buy off the shelf?

R: I think, I think you can buy simple policies off the internet, but it’s also important to make sure you get the right combination of what you need for you and your family, so speak to a financial advisor, go onto brightgrey.com which is our website where we have generic information, that’ll tell you about the sorts of policies that are available, but again get the advice that can allow you to create a tailor-made solution for yourself

H: So do you think you’ve got enough peace of mind with your policy Michaela?

M: Look I’m still reeling about half a million! No I do actually, as I say I’ve got a lot of financial plans and I’ve really thought it through and instead of putting it at the sort of bottom of the list, because my partner has been through it, you know he sat me down and he said right we’re going to write our wills, and I actually live abroad so mine’s very complicated and I had to see all sorts of financial advisors. So I have a will in the UK and I have a will in South Africa and I have all sorts of policies in place so – gosh it’s complicated. Mine is very complicated but you know if you live in one country it makes it a lot easier!

R: Of course for a lot of people it’s not as complicated as that

H: No

R: And a bit of advice, you know, even these days putting a will together, there are ways that you can do that quite easily. I think a lot of the time it’s just finding the time, and again not putting it off. Because yes you can find a will-writing service on the internet, you can find an advisor on the internet, but if you’ve got somebody screaming at you because they’re hungry, they want their tea cooked or they’re screaming at you –

H: And that’s your husband!

R: Because they’ve got to get to football practice – yes exactly – and you know little Jonny’s got his football practice and he has to be there otherwise he doesn’t make the first time

H: Yes, yes

R: Oh we’ll forget the will today, we’ll do it tomorrow

M: It doesn’t actually take that long

R: Not at all

M: I mean once I decided right we were going to sit down and do it, we got a guy in, it didn’t actually take that long

H: But a lot of things in life are like that aren’t they? They’re at the bottom of your to-do list and then they take 10 minutes. So let’s all – this week -

R: Put it to the top of the to-do list

H: Exactly

R: That’s what we need to do

H: Michaela thank you very much for coming in -

M: Pleasure

H: Have a good flight home

M: Thanks

H: And have a good train journey home

R: Thank you

H: And it’s been very interesting. If you want to find out a little bit more, go to the website that Roger just mentioned there, it’s brightgrey.com. Thank you for watching, see you again soon. Bye bye